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Estee Lauder (EL) Up 44% in a Year: Factors Driving the Stock

Zacks Equity Research

The Estee Lauder Companies Inc. EL has been adding glow to investors’ portfolio, with its shares surging 44.5% in a year compared with the industry’s growth of 30.1%. The cosmetics giant is gaining from its robust travel retail network, strong online sales and wide presence in emerging markets. These upsides helped this Zacks Rank #2 (Buy) company put up a stellar record, and also led to an encouraging outlook for fiscal 2020.

Let’s delve deeper.



Travel Retail a Sales Driver

Estee Lauder has been strongly focused on enhancing its travel retail business, which is a major sales driver. Travel retail sales remained sturdy in fiscal 2019, with broad-based growth in most brands, regions and categories. Expanded targeted reach, presence of wide assortments and easy shopping facilities are boosting travel retail sales. Travel retail has been particularly growing strongly in Asia. The company expects the travel retail business to gain from rising passenger traffic, favorable fundamentals and higher conversions.

Robust Online Business

Estee Lauder, which shares space with Avon Products AVP, has a strong online presence, which expected to become a major growth engine in the days ahead. The company is implementing new technologies and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. These initiatives and the company’s digital-first mindset have been boosting its online sales. Estee Lauder has expanded brand presence across various third-party sites to widen market reach. The company’s online business is primarily fueled by the United States, China and the U.K. regions. Also, significant contributions are being derived from other smaller regions. The company is on track with augmenting omni-channel capabilities to seamlessly connect online and offline businesses.

Emerging Market Presence Hold Promise

Estee Lauder derives significant revenues from emerging markets like China, India, Turkey, Russia and Brazil. This encourages the company to make distributional, digital and marketing investments in these countries. In the fourth quarter as well as fiscal 2019, the company witnessed growth in most emerging markets. Markedly, China was a major area of focus for Estee Lauder. Management, as part of its long-term emerging market strategy, has been making constant investments in China for the past 20 years and plans to continue growing market share in the region. Additionally, it is striving to expand in other emerging regions.

Past Record Spectacular, Outlook Raises Optimism

With the fiscal fourth-quarter results, Estee Lauder marked its 20th and 10th straight quarter of earnings and sales beat, respectively. Also, both metrics improved year over year, courtesy of the aforementioned factors. Management expects the global prestige beauty industry to grow 6-7% in fiscal 2020. Well, the company expects to outperform the industry in fiscal 2020, backed by strong demand for its premium products and other brands.

That said, management provided an optimistic view for fiscal 2020 and the first quarter.

For fiscal 2020, the company expects net sales to rise 7-8%. Further, adjusted earnings are projected to be $5.90-$5.98 per share. This reflects an improvement of 10-12% from $5.34 reported in fiscal 2019. For the first quarter of fiscal 2020, net sales are likely to improve 9-10%. Adjusted earnings are projected to be $1.56-$1.59 per share. This indicates an improvement of 11-13% from $1.41 reported in the prior-year quarter.

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